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Should VCs & Family Offices consider Variable Capital Companies (VCCs)?

Updated: Jun 11, 2020

Co-Authored by Tan Jun Ting & Cora Cheung

The VCC has generated quite some hype and I am sure you have been invited to enough seminars to know the benefits of it. While a VCC has a lot more flexibility and fund-friendly features compared to a Pte. Ltd., fund managers and Family Offices are likely to compare it to popular offshore fund vehicles instead.

So what are some benefits over other jurisdictions’ fund structures?

VCC Grant Scheme

First off, it will be difficult to find another government this generous: 70% co-funding of qualifying expenses capped at $150,000 per VCC. Each qualifying fund manager may apply for up to 3 VCC grants.

An onshore reputation

Singapore is a well-known financial hub with strong legal infrastructure and reputed for political and economic stability. Setting up a VCC here allows you to gain access to regional and international investors.

Double Taxation Relief may improve ROI

VCCs can access Singapore’s Double Taxation Avoidance Agreements (DTAAs) network of over 90 jurisdictions. VCCs can apply for a certificate of residence from IRAS to benefit from reliefs from double taxation.

This could mean reduced withholding tax on dividends, interests, royalties and even capital gains received from investments.

Reduce cost of maintenance

VCC enables cost savings as you can share expenses and resources for all the sub-funds under your umbrella structure.

We have prepared a simple comparison table between a Singapore VCC and a Cayman SPC for your reference here. Do note that it is not exhaustive but demonstrates how a VCC fare against a popular fund vehicle choice.

Infrastructure as a Private Banking Centre

Sometimes you just want to work with professionals who understand what you need. Singapore ranks ahead of Luxembourg and Dublin in the Global Financial Index Ranks the highest in Ease of doing Business of all the onshore financial centres. This is often more important than you care to admit, especially when you are not always in the country to manage your transactions.

Now back to the headline question…

Does it really make sense for you as a Venture Capital Fund or Family Office to use a VCC?

We believe so, especially if…

  • you have an existing fund in a disrepute jurisdiction

  • you are targeting regional investors

  • you are investing in jurisdictions within Singapore’s DTAA network for added investor protection

  • you are not only making equity investments; you will also need to consider withholding tax cost which can be reduced by DTAAs

  • you have an existing Singapore Fund entity set up as a company/trust, you can get more flexibility by converting to VCC

  • you wish to raise several Funds under the same Umbrella fund

  • you are already a licensed fund manager in Singapore, you can apply for the grant on up to 3 VCCs set up for your new funds

The last point is important for single-family offices as a VCC cannot be self-managed, therefore single-family offices under the exemption scheme will not qualify to use VCCs. For such cases, you may consider applying for a Venture Capital Fund Manager (VCFM) or Registered Fund Management Company (RFMC) license or set up sub-funds under some service provider’s shared Umbrella VCC.

Here's a Bonus qn, does it make sense to SHARE a VCC?

It could work well as long as you are aware of these points.

Since VCC financial statements need to be sent to sub-fund investors, sub-fund investors will have access to financial statements of other sub-funds that they may not have invested in. This may not work so well in terms of confidentiality, especially for Family Offices.

Granted the assets and liabilities of sub-funds are typically segregated under the umbrella structure. However, when contracting outside of Singapore’s jurisdiction, the courts of a foreign jurisdiction may or may not recognise this principle of segregation of assets and liabilities between sub-funds. That means the liabilities of one sub-fund may implicate the other sub-funds.

Finally, for your benefit, we have picked out one of the most common fund vehicles – a Cayman Segregated Portfolio Company (SPC) and compared it against the VCC here.

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